Thornburg Mortgage Delays Its Hail Mary

Thornburg Mortgage is having to delay its last-ditch effort to raise its "save-us" money.

Late on Thursday, Thornburg Mortgage pushed the pricing of its convertible bonds until Monday, past its initially planned Thursday release.

"We're in the process of talking to large investors," Suzanne O'Leary Lopez, a Thornburg spokesperson, told Forbes.com. "They have a lot of due diligence questions and we're working through that process right now with them." She added that the lender agreement is still in place, and they're working through Friday and the weekend to get through the process.

On Wednesday, shares of Thornburg dropped 49.7% to close at $1.50, after the mortgage company announced it needed to raise a minimum of $948 million in new capital over the next week in order to alter terms of reverse repurchase agreements with five lenders. Essentially, the company is trying to keep its creditors at bay and keep itself out of bankruptcy. (See: "Thornburg: $1B Or Bust")

The capital, to be raised via a convertible bond issue, would lead to investors in those securities owning 27% of the company, a serious level of dilution for existing shareholders that have seen most of their holdings evaporate. Last year, the stock traded above $27.00 before the subprime mortgage crisis began affecting it.

"In most cases they probably would've gone bankrupt," Jason Arnold, an analyst at RBC Capital Markets, said Wednesday, "but this group of lenders gave them a stay of execution only because the repo lenders decided to work with them."

Now, Arnold speculated that Thornburg would go to distressed debt investors to get its newly needed capital. All in all, Thornburg's mortgages are not defaulting in great numbers, but the their value has fallen because of the credit crisis.

"The problem is with leverage and assets that were not pricing very well," Arnold said. "With this deal I think it rescues them from bankruptcy, but I'm not sure going forward that the company has a lot to look forward to when you have such serious dilution of equity."

That, of course, assuming Thornburg can make the deal. Arnold said he would be surprised if Thornburg was able to get it done. "The terms are pretty attractive to the new holders," Arnold said, "But honestly given what's going on in the financial sector, given what Bear Stearns was sold for, if I were an investor I wouldn't be interested at this point."

By:Carl Gutierrez